Global tension is easing on Tuesday morning thanks to three reasons. The amount of the US infrastructure bill will be increased from 3 to 4 trillion. More details will appear on Wednesday. The Biden administration is trying to accelerate the rate of vaccination. Currently, the goal is to vaccinate 90% of the adult population by April 19. Besides, the deadline for unblocking the Suez Canal is approaching.
Market participants are mostly interested in new details on a new $4 trillion stimulus bill as it is still unclear where the government will take the money. Analysts suggest that it could be obtained through borrowing or by tightening tax legislation. Additionally, they are not sure whether the bill will be approved by Congress.
Therefore, US Treasury yields continue to rally. The US dollar is still taking the upper hand over other currencies. The uptrend of the US dollar is unlikely to change in the coming days or weeks.
Meanwhile, New Zealand lacks any interesting events that could somehow affect the lonnie. The government did not extend the program that subsidized housing construction by stopping the payment of interest on investment loans. However, most investors did not use loans, so this measure is unlikely to lead to a decrease in housing prices due to a reduction in construction. Moreover, it is unlikely to have an adverse impact on the inflation outlook. Experts also doubt an increase in mortgage rates. Since consumer confidence and housing prices are well correlated, the cancelation of the program is unlikely to affect consumer confidence, which means that the prospects for the key rate will not change.
In the long term, the outlook for the New Zealand economy remains positive. So, the government is gradually easing stimulus measures as the recovery is stable. However, it is slightly weakening the economy and versus the US dollar, the kiwi is losing momentum. Notably, the resilience of the economy is higher but investment opportunities are lower. This is why the US dollar is climbing up against the New Zealand dollar.
Currently, the net long position on NZD declined slightly during the reporting week. The positions on futures/options are neutral. However, the stock and bond markets are showing negative dynamics, pushing the kiwi down.
The New Zealand dollar has already tested the support level of 0.6970/90. The next target is 0.6750/90. As there has been a surge in demand for riskier assets at the beginning of the week, a corrective increase to 0.7090/7100 looks likely. However, the long-term trend is downward. After the correction, the Aussie may break below 0.6970/90 and lower.
The Australian labor market is once again shattered by uncertainty. The $90 billion JobKeeper wage subsidy scheme ended on March 29. More than one million Aussie workers received JobKeeper. The government expects that the economy may shed 100,000-150,000 jobs, which will increase pressure on consumer demand and inflation.
New Zealand launched a similar program and completed it in September 2020. Analysts expected the unemployment rate to soar but it did not happen. On the contrary, it fell. NAB expects that the economic recovery is unlikely to be undermined by the end of the JobKeeper program. Final estimates will be obtained after the budget updates and forecasts of the RBA, that is until the data for April is published. Therefore, until the end of May, the uncertainty will continue which is extremely bearish for the Aussie
The number of long positions on the Aussie continues to shrink. For the reporting week, they dropped by 137 million to 453 million. Yet, the bullish bias is still strong but not for long. The dynamics of the stock and debt markets are also negative. Hence, the downward movement is likely to occur.
The Australian dollar tested the support level of 0.7562 but failed to break through. After the correction, it may try to test it again. The next target is 0.7417. Now, the Aussie is more likely to reach this level than a week ago.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.